EconPapers    
Economics at your fingertips  
 

Understanding the source of multifractality in financial markets

Jozef Baruník (), Tomaso Aste, T. Di Matteo and Ruipeng Liu

Physica A: Statistical Mechanics and its Applications, 2012, vol. 391, issue 17, 4234-4251

Abstract: In this paper, we use the generalized Hurst exponent approach to study the multi-scaling behavior of different financial time series. We show that this approach is robust and powerful in detecting different types of multi-scaling. We observe a puzzling phenomenon where an apparent increase in multifractality is measured in time series generated from shuffled returns, where all time-correlations are destroyed, while the return distributions are conserved. This effect is robust and it is reproduced in several real financial data including stock market indices, exchange rates and interest rates. In order to understand the origin of this effect we investigate different simulated time series by means of the Markov switching multifractal model, autoregressive fractionally integrated moving average processes with stable innovations, fractional Brownian motion and Levy flights. Overall we conclude that the multifractality observed in financial time series is mainly a consequence of the characteristic fat-tailed distribution of the returns and time-correlations have the effect to decrease the measured multifractality.

Keywords: Multifractality; Financial markets; Hurst exponent (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437112002890
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
Working Paper: Understanding the source of multifractality in financial markets (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:391:y:2012:i:17:p:4234-4251

DOI: 10.1016/j.physa.2012.03.037

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-07-22
Handle: RePEc:eee:phsmap:v:391:y:2012:i:17:p:4234-4251